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Budana v. The Leeds Teaching Hospitals NHS Trust & Anor [2017]

CFA assignment has reigned as a hot topic for some time in the legal world and after a 5 month delay the long-awaited judgment in Budana v The Leeds Teaching Hospitals NHS Trust & Anor [2017] EWCA Civ 1980 (05 December 2017) has finally been handed down by the Court of Appeal.

Interestingly the Court of Appeal recognised that the case had to be approached “with an appreciation of the economic environment in which personal injury litigation is conducted today” with reference made to the Law Society’s estimate that “there are many thousands, and perhaps tens of thousands, of claimants in the same position as the claimant in the present case and whose pre-1 April 2013 CFAs were purportedly assigned by one firm of solicitors to another.”

Speed Read

The key conclusions can be surmised as follows:

1. The original CFA with Baker Rees was not terminated on the basis that the Claimant affirmed the transfer to Neil Hudgell. This diluted any impact of any repudiatory breach. Getting consent from the client is key.
2. The CFA in this case was not assigned but was rather novated. Section 44(6) of LASPO permits recovery of “a success fee payable by [the Claimant] under a conditional fee agreement entered into before” 1 April 2013. In this case a success fee on Neil Hudgell’s costs was payable by the Defendant as the parties (to the CFA) expressly provided that the terms under the previous CFA be continued.
3. There is no reason in principle why rights and benefits under a CFA should not be capable of assignment.
4. The question of assignability of rights and benefits is not limited by a personal relationship between a solicitor and the client. This issue is fact specific. Given how most personal injury litigation is now conducted, CFAs will generally lack the features of a personal contract. A client wants representation by a competent practitioner and not necessarily representation by a specific individual.
5. Ruling in favour of the Defendant would have created a position whereby the Claimant would be deprived of pre-LASPO benefits and the mitigating elements post-LASPO and this could not be the intention of Parliament.
6. Any practitioner looking to undertake assignment or a novation would be wise to seek professional advice to ensure that all aspects of the process are undertaken correctly, as the implications of getting it wrong are catastrophic.

 

Background

In Budana the Claimant instructed Baker Rees to pursue a claim for damages on her behalf. During the course of the retainer, Baker Rees decided that personal injury litigation was no longer viable and proposed to transfer the case to Neil Hudgell Ltd, unless the Claimant instructed them otherwise. The Claimant did not instruct Baker Rees otherwise.

On 25 March 2013, Baker Rees and Neil Hudgell entered an agreement for the purchase of Baker Rees’ personal injury business. The parties entered into a Master Deed of Assignment which purported to assign a number of retainers in respect of personal injury claims and associated CFA agreements.

Neil Hudgell Ltd contacted the Claimant over the telephone on 31 March 2013 to advise that the case had been transferred and that it would continue under the same conditional fee agreement. The Claimant confirmed her agreement to this proposal and on 10 April 2013, signed and returned a letter of instruction agreeing Neil Hudgell Ltd.’s terms of business and a deed of assignment between the Claimant and Neil Hudgell Ltd.

On 17 May 2013, the Claimant signed a back-up post-LASPO CFA with Neil Hudgell which was deemed only to be “effective in the event that the Deed of Assignment” sent previously did not have the effect of allowing recovery of costs.

The claim subsequently settled with a Part 8 application to recover costs issued on 7 November 2013. An order for costs was made on 11 December 2013. Over the course of the assessment the Defendant raised issues over the purported assignment.

Particular contention arose as the assignment took effect on the eve of LASPO. Under LASPO recoverable additional liabilities were abolished inter partes.

 

The Arguments

The Claimant’s position was that she was entitled to recover costs under the Baker Rees CFA, including the success fee, from the Defendant as the agreement had been assigned.

The Defendant, resisted payment of any success fee and argued that the Claimant could recover only her base costs under the Neil Hudgell CFA and not any costs or success fee under the Baker Rees CFA. It was the Defendant’s case that the Baker Rees CFA was terminated on 22 March 2013. This was because of a letter sent by Baker Rees to the Claimant which stated that “we have decided to stop handling personal injury litigation”. The Defendant further averred that even if the CFA had survived, it could only have been transferred to Neil Hudgell by assignment, but instead, could only have been novated after 1 April 2013. It followed that the novated contact was a new contract entered into post-LASPO, thus falling foul of LASPO on the basis that it included a success fee in excess of the permitted amount.

 

The First Instance Decision

The claim was initially heard on 14 September 2015 with judgment handed down on 4 February 2016. The Court held that the Baker Rees CFA was terminated “without good reason” by the 22 March letter and consequently there was no contract which could be transferred.

The Court did, however, hold, that in the event the Baker Rees CFA had survived then the assignment would have been effective. This was on the basis that the Judge was “bound to accept that it was possible to transfer a CFA from one firm of solicitors to another by assignment, […], in accordance with the decision of Rafferty J in Jenkins v Young Bros Transport Ltd [2006] EWHC 151 (QB). Despite this, the Court also went on to hold that the consequence of the Claimant’s subsequent ratification of the first deed was that there was a novation of the existing retainer, with the result that Neil Hudgell Ltd had been substituted in the place of Bake Rees under the terms of a new contract. Accordingly, there was no Baker Rees CFA in existence as of 1 April 2013.

This decision was the crux of the appeal made by the Claimant with the Defendant cross-appealing in relation to the judge’s determination that the Baker Rees CFA had been validly assigned.

 The issues to be determined by the Court of Appeal were surmised as follows:

 

Issue 1 – Was the Baker Rees CFA terminated by the 22 March letter?

The Court of Appeal held that the Baker Rees CFA was not terminated and that the Judge in the first instance decision had erred in law in reaching the contrary position.

The Court of Appeal stated that:

“As the Claimant submitted, neither the 22 March letter nor any (purported or actual) transfer of the Baker Rees CFA could amount to a termination of the contract without the Claimant having elected to treat the contract as terminated. It is trite law that a repudiatory breach by one party cannot unilaterally terminate the contract. Instead, the innocent party may elect between termination and affirmation of the contract. Unless and until the innocent party terminates the contract, it subsists.”

 

Issues 2 & 3 – If the Baker Rees CFA was not terminated, was the transfer of the CFA effective as an assignment (as opposed to a novation)? & On the premise that the Baker Rees CFA was not terminated, but that the transfer took effect as a novation, should section 44 of LASPO nevertheless be interpreted so as to include a CFA entered into before 1 April and novated after 1 April 2013?

The Court of Appeal made reference to the Supreme Court decision in Plevin (Respondent) v Paragon Personal Finance Limited (Appellant) which in the view of the Court supported the conclusion that rights under a solicitors’ retainer are assignable notwithstanding any personal element.

The Court of Appeal, however, stated that on 10 April 2013, the Claimant entered into a new contract with Neil Hudgell pursuant to the terms of the second deed and the letter of instruction. The Court held that “a new contract as between all three parties, involving, as it did, the discharge of Baker Rees from all obligations under the Baker Rees CFA and the consent of the Claimant to Neil Hudgell assuming such obligations.”

It was the Court’s view that “the fact there was a new contract [did] not mean that, for the purposes of section 44(6) of LASPO, the success fee payable by the claimant to Neil Hudgell, as a result of the contractual arrangements, did not qualify as a ‘success fee payable by … [the claimant] under a conditional fee agreement into before’ 1 April 2013.”

The Court of Appeal considered that the expressly stated terms in the Master Deed and second deed made it clear that the intention of the parties was that Neil Hudgell should simply be substituted in Baker Rees place, under and subject to the same terms of the existing continuing retainer (i.e. the Baker Rees CFA). Reference was made to the effects of a novation in Essar Steel, “where one participating syndicate member [transferred] its obligations to a third party.” The Court recognised that “whatever the technicalities of novation as a concept, the original syndicated loan agreement [remained] as a continuing operating contractual instrument between the borrower and all parties.” It was on this basis that the Court stated that “the fact there may have been a novation” did not preclude the recovery of a success fee.

Reference was made to Lord Sumption’s judgment in Plevin:

“The purpose of the transitional provisions of LASPO, in relation to both success fees and ATE Premiums, is to preserve vested rights and expectations arising from the previous law. That purpose would be defeated by a rigid distinction between different stages of the same litigation.”

The Court of Appeal continued that the purpose set out above “would be defeated by an overtechnical application of the doctrine of novation so as to prevent any litigant, who had begun a claim under a CFA prior to 1 April 2013, from recovering costs in respect of a success fee”.

It was made clear, however, that recovery of a success fee would depend on the “precise terms of the relevant contractual arrangements entered into between the parties and whether the new firm was indeed intended to operate ‘under’ the terms of the previous CFA.”

It was held by the Court of Appeal that if the Defendant’s argument prevailed that the Claimant would lose both the “pre-LASPO regime advantages but receive none of the mitigating benefits” and that this was not a situation which Parliament had intended to create. In a damning statement the Court of Appeal added that “the result suggested by the Defendant may impede the constitutional right of access to the court for those in a similar position as to the claimant.”

Issues 2 & 3 were resolved in the Claimant’s favour on the basis that Section 44 of LASPO allowed payment of a success fee under a conditional fee agreement entered into before 1 April 2013. It was concluded that the Claimant was entitled to recover a success fee from the Defendant.

 

Issue 4 – If, instead, the Baker Rees CFA was indeed terminated, was the Claimant liable to pay Neil Hudgell Ltd for the work done by Baker Rees under the Neil Hudgell CFA in any event?

 Given the conclusion reached in respect of issues 2 and 3 it was determined that this was not a necessary issue to be considered.

 

Conclusion

The case was heard by Lady Justice Gloster (who gave the substantive judgment referred to throughout this article), Lord Justice Davis and Lord Justice Beatson. Interestingly LJ Davis and LJ Beatson both provided substantive supplementary comments.

LJ Davis agreed that the appeal should be allowed reinforcing the fact that if the Defendant was successful “the Claimant would be deprived of costs to which she might ordinarily have been entitled [and] the Defendant [would be] be absolved from paying those costs by virtue of adventitious technicality”.

He went on to say that “if the parties to an agreement expressly agree in it that one party may assign both the benefits and the obligations of performing the contract to another then in my opinion there can be no legal objection to the efficacy of such an assignment, as an assignment, if effected thereafter.” LJ Davis later added that he did not “see why it should conclusively matter that the consent of the oblige is given at the time of the assignment rather than being given in the original contract in the first place.”

It was on this basis that LJ Davis, unlike LJ Gloster advocated the long-held case of Jenkins v Young Bros Transport Ltd [2006] EWHC 151 (QB). He stated that “the parties were intending that the terms of the original Baker Rees CFA should continue to apply and have effect: and should do so by way of assignment. The court, in my judgment, should seek to give effect to that.” Agreeing with Judge Graham Wood QC in the course of his judgment in the county court decision of Jones v Spire Healthcare Limited (11 May 2016) he further proclaimed that “it would be ‘unduly restrictive’ to the deny the parties the effect of what they intended.”

LJ Beatson also allowed the Claimant’s appeal and dismissed the Defendant’s cross-appeal. He made the comment that “there may be a case for being more relaxed about the assignability of certain solicitor-client contracts which are of a bulk and relatively impersonal nature.” It was added that “if there [was] to be a relaxation of the rules precluding the assignability of solicitor-client contractual relationships, a principle needs to be identified upon which to do so.” LJ Beatson did not consider that one had been identified.

LJ Beatson disagreed with LJ Davis and in agreement with LJ Gloster that it was a novation that took place and not an assignment.

What can be seen from the multitude of issues and views is that this remains a complex area of law and whilst Budana is undoubtedly a significant outcome for Claimants it remains important to be nuanced.

Budana demonstrates that there are many conflicting elements which if enacted without proper thought and consideration could be catastrophic.

CFA Assignment remains a specialist area to which we would always recommend advice is taken. The risks are too great to not do so.

What Budana shows is that even the Court of Appeal does not hold one singular view on the issue and as LJ Beatson points out there is still no principle or boundaries set out dealing with the practicalities of assignment.

One can, however, say that the Court of Appeal’s openness in considering the present economic situation of personal injury litigation and issues of access to justice is refreshing. Common sense has prevailed.

It remains to be said that Budana is unlikely to be the last word on assignment but for the moment it is the most complete guidance we have.

 

 

 

 

 

 

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